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Target Aims at Inner City Markets for Latest Expansion

--Target plans to open three city stores this month --'CityTargets' to be two-thirds size of average Target --Latest move by a big box retailer to crack urban markets By Karen Talley Target Corp. (TGT), known more as a suburban landmark, is setting its sights on opening stores in the hearts of big cities and bustling downtowns. CityTargets, as the stores are called, will open this month in Los Angeles, Chicago and Seattle, with another Los Angeles site and a San Francisco store planned for October. The locations will be about 90,000 square feet, or two-thirds the size of the average Target, and outfitted with a more urban approach--selling small bistro tables instead of patio furniture and six-roll packs of paper towels instead of 12. The stores will have "a little bit of edge but still reflect great value," said John Griffith, Target's head of property development. All stores will have floor-to-ceiling signs just inside their doors welcoming customers to that particular city, and feature a big screen at the entry, streaming Target promotions, store information and local weather. Target's move is the latest iteration by a big box retailer to crack urban markets as they are squeezed by suburbs that have become overcrowded with stores, including their own. Target won't change its suburban store opening plans in favor of focusing on smaller urban targets, but the retailer's expansion of suburban stores has slowed. Target plans to open 14 stores this year, aside from the CityTargets. That figure compares with the company's 2008 plans to build about 116 stores that year. Target also plans to keep opening stores on the fringes of urban areas and those areas that aren't directly in the hearts of cities. For instance, Target already operates a store in upper New York City, in East Harlem. Wal-Mart Stores inc. (WMT) has opened a dozen "Express" locations in cities over the past year, in what it still describes as a "pilot program" for the 15,000-square-foot locations that focus on food and other consumables. Best Buy Co. (BBY) has opened smaller stores in Minneapolis, its hometown, and San Antonio. The smaller locations are pilots that could be rolled out more widely eventually, Best Buy has said. Mr. Griffith declined to offer specific cost figures for the CityTargets, but he did say that while there will be "a higher level of investment, we also believe there will be a higher level of return." That's because the smaller square footage should make the space more efficient and the stores are expected to draw in many customers. "We'll do a lot of business out of these stores there is no question about that," Mr. Griffith said. As Target is doing in its regular stores, the CityTarget will carry expanded grocery assortments, as well as the full lines of merchandise like apparel, home goods and consumer electronics. Mr. Griffith said most urban customers already know Target, having shopped at its suburban stores that are not too far away. "This is not so much a test for us, this is a guest we already have a strong affinity with," he said. He said those customers will likely still go back to suburban Targets "occasionally," when they visit malls in those areas or family or friends. As for additional expansion, "The challenge is finding the right locations," Mr. Griffith said. Target has two more CityTargets on the docket for next year, in Portland, Ore., and a third Los Angeles store. The retailer declined to discuss plans beyond that. There are pluses and minuses for a so called big box retailer to try and make an imprint in cities, analysts said. "There are a lot of people in downtown Chicago, downtown Los Angeles," said Craig Rowley, vice president of retail consulting for the Hay Group. "By locating in the city they can capture this business." The challenge is "can it be done profitably," Mr. Rowley said. "From loading docks to running multi-floor stores to responding to the shopping habits of urban customers who lives in smaller spaces, it isn't easy and requires a different way of managing the business." The urban centers are the latest move by Target to build out its customer base. Target this week teamed with Neiman Marcus Group Inc. to sell a collection from 24 American designers including Diane Von Furstenberg and Tory Burch. Target is also expanding into Canada next year, planning to tap a whole new constituency. Target itself has had a subdued recovery since the recession as customers have still hesitated to shop for discretionary items. In recent months, clothing sales have started to pick up, but home furnishings are still soft. In its first fiscal quarter ended April 28, sales grew 5.9% to $16.86 billion, with profits rose 1.2% to $697 million. Write to Karen Talley at karen.talley@dowjones.com

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